Thank you for standing by. My name is Mandeep and I'll be your operator today. At this time, I'd like to welcome everyone to the Organon Q3 2024 earnings call webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there'll be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Jennifer Halchak, Vice President, Investor relations. You may begin.

Thank you, operator. Good morning, everyone. Thank you for joining Organon’s third quarter 2024 earnings call. With me today are Kevin Ali, Organon’s Chief Executive Officer, and Matt Walsh, our Chief Financial Officer, as well as Juan Camilo Arjona Ferreira, Organon's Head of R&D. Today, we'll be referencing a presentation that will be visible during this call for those of you on our webcast. This presentation will also be available following this call on the events and presentation section of our Organon investor relations website at www.organon.com. Before we begin, I would like to caution listeners that certain information discussed by management during this conference call will include forward-looking statements. Actual results could differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with the company's business, which are discussed in the company's filings with the Securities and Exchange Commission, including our 10-K and subsequent periodic filings. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the press release and conference call presentation. I'd now like to turn the call over to our CEO, Kevin Ali.

Good morning, everyone, and thank you, Jen. Welcome to today's call where we'll talk about our third quarter results. For the third quarter of 2024, revenue was $1.6 billion, representing a 5% growth rate at constant currency. The women's health franchise grew 6%. Our biosimilars franchise grew 17%. And our established brands franchise was up 3%. Adjusted EBITDA was $459 million, representing a 29% adjusted EBITDA margin. Adjusted EBITDA includes $51 million of IPR&D expense booked in the third quarter worth approximately 320 basis points of margin in the quarter. Year to date, we have generated nearly $700 million of free cash flow and are well on track to deliver our commitment of approximately $1 billion of free cash flow before one-time costs in 2024. Our significant free cash flow enables us to comfortably service the dividend and still gives us capacity to invest in high potential assets. Given our view into the rest of the year, we raised the midpoint of our revenue guidance by $50 million to reflect performance year to date and improve view of foreign exchange. The guidance represents growth of 1.8% to 2.6% on a nominal basis and 3.1% to 3.8% ex-exchange for the full year. That would represent our third consecutive year of constant currency revenue growth, driven by strong performance in Nexpanon, biosimilars, Jada, and the addition of Emgality. Further, while it's too soon to be guiding to 2025 on this call, at this point in our planning cycle for next year, we believe that organic growth drivers plus contribution from recent business development will support another year of constant currency revenue growth in 2025. We're also revising our full year 2024 adjusted EBITDA margin range. The new range is 30% to 31%. Matt will walk you through that bridge, which factors in…

Thank you, Kevin. I'd like to expand on Kevin's point about how VTAMA is much better situated in the atopic dermatitis market than in psoriasis. Psoriasis is a systemic autoimmune disease that more frequently benefits from systemic therapy, and patients can be well controlled with injectable biologics. In fact, at the time of the VTAMA launch, the psoriasis market was already fairly saturated with biologics. Therefore, there wasn't a critical unmet need like there is today in atopic dermatitis. Atopic dermatitis, on the other hand, is a chronic, long-lasting disease characterized by inflammation, redness, and irritation of the skin that is best addressed with a topical solution. During a flare, atopic dermatitis can be highly symptomatic, and the itchiness associated with it can be so severe it may even affect sleep. Despite the significant disease burden associated with AD, there has not been a lot of innovation. The existing topical treatments are mostly steroids which were first available in the 1950s and are not intended for chronic use. Current nonsteroidal treatment options for AD consist of a few agents that have demonstrated different levels of efficacy, one being a highly priced injectable biologic and another a DAC inhibitor that offers a black box warning. There is need for a solution that is efficacious, like the biologics, and with a safety and tolerability profile that is suitable for long-term use in adults and children. The results from the two Phase 3 clinical trials support our view that VTAMA has the potential to fill this gap. Pending FDA approval, our proposed label for VTAMA is broad, potentially covering mild to severe AD, with no restrictions for use or limitations of body surface area, with a high rate of treatment response in children greater than two years of age and adults and good tolerability. Our proposed label would be truly different to the label of other options on the market. So we are confident in the clinically different profile of VTAMA for the treatment of atopic dermatitis and we're excited to bring this novel option to the patients who have been suffering from this condition and their healthcare providers who will no longer have to make trade-offs between efficacy and safety if VTAMA is approved.

Thank you Juan Camilo. So we're talking about a treatment option that is clinically differentiated in a large market with a critical unmet need. That combination makes us very confident in the commercial positioning for VTAMA and atopic dermatitis if approved. And from a capital allocation standpoint, this transaction makes a lot of sense for Organon. The terms of the transaction are very attractive with the economic skewed disproportionately towards success-based milestones. We expect to achieve at least $150 million of sales of VTAMA in 2025 with the potential to grow to $0.5 billion over the next three to five years. In 2025, we expect the transaction to be dilutive to our EBITDA margin by about 50 basis points, and we expect the transaction to be accretive in year two with earnings accelerating from there. The acquisition also nicely leverages Organon's existing therapeutic expertise in dermatology. Our existing dermatology portfolio of seven products outside the US delivered $240 million of revenues in 2023. The addition of VTAMA allows us to create a dermatology presence in the US where we have a very experienced and scaled access team at the local, state, and national levels. We expect to be in a position to launch the AD indication immediately after approval, focused on expanding access, ultimately improving VTAMA’s gross to net over time. We'll also have the potential to launch internationally down the road. Overall, we believe we are the best owner of VTAMA. With solid growth prospects and healthy margins, we believe it will contribute solidly to the financial profile of Organon. So let's review the rest of the business in greater detail. Growth in women's health was driven by continued strength in Nexplanon, which was up 11% ex-FX in the third quarter. In the US, Nexplanon grew 18% in the…

Thank you, Kevin. Beginning on Slide 9, here we bridge revenue for the third quarter year over year. As Kevin mentioned at the outset, third quarter revenue of $1.58 billion was up 4% over third quarter of last year and ahead 5% at constant currency. Impact from LOE was about $5 million in the quarter, which reflects the loss of exclusivity of Atozet in Japan and negligible impact from the beginnings of the Atozet LOE in Europe, which happened in September. We didn't have any meaningful VBP headwind in the third quarter as the effects of Round 8 that began in the third quarter of last year and included Remeron and Hyzaar are now washing out. There was an approximate $70 million impact from price in the third quarter or about 4.6%. You may recall that in our second quarter call, we said that the back half of 2024 would face steeper headwinds from price than the first half due to the timing of mandatory pricing reductions in Japan, mainly in the cardio and respiratory portfolios, which is what we are seeing. We're also seeing pricing headwinds coming from the September LOE of Atozet in Spain and France as well as from certain mature products in the US like NuvaRing, Dulera and Renflexis. Volume growth in the quarter was $150 million or almost 10% across several drivers. Hadlima and Emgality were the largest contributors to volume growth, followed by fertility, Nexplanon, and established brands, especially in China. Timing of tenders of Ontruzant and NuvaRing in the US were the biggest offsets to volume growth. In supply/other, here we capture the lower margin contract manufacturing arrangements that we had with Merck, which had been declining since the spinoff as expected, although there was only a small change year-over-year in this bucket…

[Operator Instructions] Our first question comes from the line of Balaji Prasad with Barclays. Please go ahead.

Hi, good morning and thank you for the questions. Firstly on VTAMA, congratulations on the deal, seems to be well laid out in terms of capital allocation. Could you comment on the current profitability or the EBITDA contribution from Dermavant? And maybe getting to next year, on the OpEx of $180 million, split it up into atopic dermatitis spend versus psoriasis spend? And second question is on Nexplanon. Probably a slightly more sensitive topic, but can you comment around the current political climate vis-a-vis LARCs and maybe more specifically business growth drivers for Nexplanon? Thank you.

Matt, you want to take the first?

Yeah. So, we've got two months of VTAMA included in our rest-of-year guidance for 2024 and so it's nominal. I mean, we're looking at a revenue run rate of approximately $6 million per month and we're forecasting the same level of dilution in this stub period as we would be talking about for 2025. So that's the VTAMA piece.

And, Balaji, in regards to your question regarding Nexplanon, it's actually a very timely question. I just came back from meetings on The Hill in DC and on both sides of the aisle, I can tell you, we obviously know there's going to be a new administration coming in. And on both sides of the aisle, I think the issue around access to LARC’s, access to contraception with regards to women's health in general is not a threat at all. As a matter of fact, I think on both sides, there's a doubling down of sorts that nobody wants to kind of get into any kind of discussions around whether it's fertility or access to contraception in order to be able to address reproductive health related issues. So that's strong. And then our Nexplanon business continues to go along very well in the US. We're a market leader in the contraception space, especially in terms of LARCs. And we see continued growth, not only in terms of demand, but also in our 340B business is also growing with the federally qualified health centers that is -- there's a great opportunity for us in the future. So we'll reach $1 billion, which is faster than I anticipated for Nexplanon globally with US obviously driving a big portion of that in the -- for us next year for Organon. And that's our first kind of major blockbuster milestone for the product, and we see a lot of years ahead of it in terms of the runway. Thanks for the question.

Our next question comes from the line of David Amsellem with Piper Sandler. Please go ahead.

Thanks. So just a couple for me. So now that you have medical derm commercial infrastructure in place and this is a new therapeutic vertical, how are you thinking about leveraging that infrastructure over the long term by the acquisition of additional assets? How aggressive do you want to be? And is it just medical derm or are you also open to assets in medical aesthetics? And then with the acquisition of Dermavant, how does that change your thinking on capital deployment? Are you looking to get more aggressive on the M&A front, particularly in a lower rate environment? Just philosophically, how are you thinking about things in the wake of the acquisition and in the context of a lower interest rate environment? Thank you.

Thanks, David. I can address those questions. First, in regards to bringing this new vertical in the US, we've always been very big fans of VTAMA and Dermavant in terms of what -- where the opportunities are. I listed them out in my script in terms of the opportunities for atopic dermatitis. And so that continues to be something that we feel very, very enthusiastic and very bullish about. And this is a great product. And I think you saw the differentiation that Juan Camilo spoke to. It's a great position within the atopic dermatitis space in both efficacy of a biologic, even potentially, potentially, I'd say, that greater and really well tolerated for use for long periods of time. So really excited about that. And you're right, David, over time, it definitely opens up a new opportunity for us. Now keep in mind that we do have opportunities to internationalize VTAMA. So we'll be taking that path as soon as we can. We're going to be hopefully launching in Canada as the first country. We're on track for that in the not-too-distant future. So that will be a nice addition to our portfolio. But also, we'll be looking at other countries as well. And we also have a royalty agreement within Japan. So we'll be getting royalties from that partnership as well. But within the US, definitely, it opens up quite a bit of different opportunities that we see, a variety of different opportunities. You mentioned a few of them, whether it's anti-infectives, all the way to aesthetics and everything in between. Look, the team that we are bringing over from Dermavant is top notch, and we intend to essentially support them with all the different expertise we have, especially on the access front. We've got some of the best access folks that you know where we all came from, and this is kind of on the regional, local as well as state levels as well as national levels that will help to really expand our opportunities not only with VTAMA, but also establishing ourselves for the future in that derm space. In regards to the future of our capital allocation in terms of BD as well as where rates are going, I think right now, our pure focus for 2025 will really be about integrating as well as really driving the VTAMA performance, and then we'll cross that bridge when we come to it.

Our next question comes from the line of Jason Gerberry with Bank of America. Please go ahead.

Hey, guys. Good morning. Thanks for taking my question. Mine is, just wanted to follow-up on the Dermavant accretion dilution profile, and given this is a new therapeutic vertical, just wondering if you can talk through conceptually the incremental selling and marketing cost versus what you're able to absorb with your own in-house resources. I think Dermavant talked at one point about more than $300 million or so OpEx versus your $180 million number. So just kind of wondering, are you putting less behind the product, or are there cost offsets in your infrastructure or alternatively, is the AD cost maybe not fully baked into the $180 million? Just wanted to get some clarity around those inputs. And then just on your Nexplanon citizens petition filed, is there any backstory to that? And what I'm getting at is, I don't know if the FDA were they unreceptive to proposed changes in product specific guidance or is this basically your first sort of attempt to get the FDA to pay increased attention to the applicator similarity points that were raised in the CP? Thanks.

So, I'll take the VTAMA question first, Jason. So, from an OpEx perspective, I'm not exactly sure what Dermavant disclosure has been, I think that approximate $300 million number is a very round number. We think we're onboarding operating costs of about $240 million and we see -- and in terms of how that cost is broken out, roughly a third of that is sales and marketing costs for which we intend to onboard that lock, stock and barrel. That's the expertise in the US derm sales and marketing capability that is the key value driver for us going forward and its expertise we're absolutely focused on onboarding in the right way. And so, the synergies as we achieve them will come from the remainder. And I think a significant part of the difference in the cost you might be looking at versus the $180 million of OpEx we're talking about next year is R&D costs under prior ownership that were already coming off. So I think that's a pretty important distinction between prior benchmarks and the OpEx that we believe we're onboarding for 2025. And just to reiterate from the prepared comments, we just see one year of dilution from onboarding the product, it will be accretive in 2026 and thereafter at what we believe are very achievable revenue estimates.

Jason, in regards to the question on the submission of the petition, it's still pending. So I can't speak to that until in terms of when we get a response from the FDA. But the issue that I wanted to clarify is the fact that we do have patent protection on our applicator device until 2030. And I think that needs to be essentially understood that unless you want to devise and design and submit in your own clinical studies a new completely new applicator, you can't use our applicator past until 2030. And so that is one aspect when you make mention of the applicator device in terms of the patent protection. But also, the fact of the matter is, I've always signaled the fact that it's not an easy go of it. And again, like I said, if you just want to use a proxy, just look at the IUD Mirena in terms of the fact that we're now like seven years post LOE and there's still no true generics in the market. It's not an easy thing to do and you've got to have a huge amount of infrastructure investments in terms of not only sales force to train your physicians on how to insert and remove your rod, but all of the other things that goes into medical affairs and pharmacovigilance and all the nature of that. The FDA is very sensitive to that. So I think that's my view in terms of the runway ahead for Nexplanon.

Got it. Thanks so much, guys.

Sure, Jason.

Our next question comes from the line of Umer Raffat with Evercore ISI. Please go ahead.

Hi guys, thanks for taking my question. I'm curious, the $180 million in OpEx you referred to, is that inclusive of the ex-US spend you intend to do as well? And in a scenario where VTAMA underperformed, how much can you pull that back? Thank you.

So I'll take the first part of that question. So in the $180 million OpEx for 2025, that's really US focused. There's really nothing of significance ex-US in that. And for the second part of the question, how much can we pull it back? Look, you can always cut back on promotional spend. We have plans in place to synergize on the G&A pieces of the cost structure. But I don't know that we would be focused on that in 2025. We will be putting all of our energies behind the successful launch of VTAMA. So the next 14 months, let's say, till the end of 2025 are really key. And so if we have to think about retrenchment, Umer, we will be looking at that beyond 2025.

Great.

Thanks, Umer.

That concludes our Q&A session. I will now turn the call back over to Kevin Ali for closing remarks.

Thank you. Just in closing, look, 2024 -- in 2024, our commercial execution, I believe, has been very strong. Our largest product, Nexplanon, is well positioned, as I mentioned earlier, to deliver $1 billion of revenue next year. And we've added other notable growth drivers with Emgality and most recently, what we've just discussed this morning, VTAMA. Further, we've been extremely disciplined on operating costs and driving adjusted EBITDA growth in support of achieving $1 billion of free cash flow before one-time costs for the full year 2024. So we're well on track to delivering a very solid year and we want to thank you for dialing in today and we'll talk to you soon.

This concludes today's call. You may now disconnect.